Short-selling BaFin bans short sales of Wirecard shares after market cap battered

Germany's financial watchdog takes an unusual step to protect what is seen as one of the most promising upstarts in Europe's biggest economy.

German securities regulator BaFin has banned short-selling of shares in Wirecard after reports of financial misdeeds at the fintech’s Singapore unit wiped billions off its market value.

Traders are forbidden from placing orders for such transactions through April 18, and investors who already hold short positions may not expand them, the regulator, officially known as the Bundesanstalt für Finanzdienstleistungsaufsicht, announced early Monday. In short-selling, investors sell borrowed securities in the expectation of buying back them back more cheaply at a later date.

On January 30, the Financial Times claimed Wirecard had discovered accounting inconsistencies at an Asian unit nearly a year earlier, leading to an as-much-as 40 percent drop in Wirecard shares. Wirecard said the accounting woes were related to just three transactions worth €13.6 million ($15.4 million), but that didn’t stop investors from slashing €10 billion off its valuation.

A first

“The current circumstances related to Wirecard are adverse events or developments which constitute a serious threat to market confidence in Germany,” the European Securities and Markets Authority said in approving BaFin’s action. “The proposed measure is appropriate and proportionate to address the threat to German financial markets.”

Wirecard shares leapt on the news, trading 13.1 percent higher at midday on the Frankfurt Stock Exchange, valuing the company at nearly €14 billion.

It's the first time BaFin halted short-selling for a single company, although it did forbid such trading in 11 financial services companies during the credit crisis to help stabilize markets. It also comes after Munich prosecutors said they would look at not only suspicious short-selling of the stock just prior to the FT article, but also violations of security trading rules by an FT journalist.

Insider trading

Based in the town of Aschheim near Munich, Wirecard enjoys a high profile as a rare German unicorn – a startup worth more than $1 billion – and is the first to make it onto the blue-chip DAX index of 30 key listed companies.

Although investors may be nervous about holding Wirecard shares, board members Jan Marsalek and Alexander von Knoop bought €220,000 worth of their company’s shares in early February at a price between €110 and €111.80.

Andrew Bulkeley is an editor in Berlin for Handelsblatt Today. To contact the author: [email protected]